Manageriale Economics, Allen, Ch 11, Test bank

Chapter 11: Oligopoly MULTIPLE CHOICE

1. a.  b. c. d. e. ANS: C MSC: MSC: Fact Factua uall 2. a.  b. c. d. e. ANS: C MSC: MSC: Fact Factua uall

A mark market et wher wheree the there re are are onl only y a few few sel selle lers rs is know known n as: as: perfectly competitive. monopolistically monopolistically competitive. competitive. oligopolistic. monopolistic. cartelized. DIF:

Easy

REF: 410

TOP: Oligopoly

In th the mo model of of ol oligopoly, th there: are many firms producing differentiated  products. is one firm producing producing undifferentiated undifferentiated  products. are a few firms producing differentiated or undifferentiated undifferentiated products. are many firms producing undifferentiated  products. is one firm producing a highly differentiated  product. DIF:

Easy

REF: 410

TOP: Oligopoly

3. When When an econ econom omis istt say sayss an an oli oligo gopo poly ly has has a “sma “small ll”” num numbe berr of firm firms, s, the the economist means: a. exactly 1.  b. exactly 2, 3, or 4. c. few enough to allow for interdependence. d. few enough to allow for perfectly inelastic demand curves. e. few enough to allow for four stages of industry development. ANS: C MSC: MSC: Fact Factua uall 4. a.  b. c. d. e. ANS: D MSC: MSC: Fact Factua uall

DIF:

Easy

REF: 410

TOP: Oligopoly

Olig Oligop opol oly y is is a mark market et stru struct ctur uree tha thatt nec neces essa sari rily ly has: has: cartels. a large number of firms with with homogeneous homogeneous  products. a large number of firms with slightly different products. a small number of firms but more than one. only one firm. DIF:

Easy

REF: 410

TOP: Oligopoly

5. a.  b. c. d. e. ANS: E MSC: Factual 6. a.  b. c. d. e. ANS: A Behavior  MSC: Factual 7.

Oligopoly is the only market structure in which one finds: barriers to entry. competing brand names. minimum average total cost pricing. advertising. firm interdependence. DIF:

Easy

DIF:

Easy

REF: 411

TOP: Cooperative

A cartel is: the name for firms in any oligopoly market. a collusive organization. an oligopolist that competes with other oligopolists. a group of firms using price leadership. a group of firms using preemptive strategies.

d. e. ANS: B Behavior  MSC: Factual 8. a.  b. c. d. e. ANS: E Behavior  MSC: Factual 9.

e.

TOP: Oligopoly

In the United States most cartels were declared illegal by the: Sherman Antitrust Act. Interstate Commerce Commission. Supreme Court. Constitution. Declaration of Independence.

a.  b. c.

a.  b. c. d.

REF: 410

DIF:

Easy

REF: 411

TOP: Cooperative

Profit-maximizing cartels choose price equal to: marginal cost. average total cost of the last unit. marginal revenue. the monopolistically competitive price. the monopoly price. DIF:

Easy

REF: 411

TOP: Cooperative

Profit-maximizing cartels allocate sales according to: precartel sales. potential to cheat on the cartel. geographic location. quantities where all firms’ marginal revenues are equal. quantities where all firms’ marginal costs are equal.

ANS: E Behavior  MSC: Factual

DIF:

Easy

REF: 411

TOP: Cooperative

10. If the market described in the accompanying diagram is dominated by a cartel, the loss in total surplus relative to perfectly competitive market conditions will be:

a.  b. c. d. e.

$500. $1,000. $2,000. $3,000. $4,000.

ANS: A Behavior  MSC: Applied 11.

DIF:

Easy

TOP: Cooperative

Cartels can only exist:

a.  b. c. d. e.

in oligopoly markets. when products are homogeneous. when products are not homogeneous. in countries where they are legal. when demand curves are perfectly inelastic.

ANS: A Behavior  MSC: Conceptual 12. diagram is:

REF: 411

DIF:

Easy

REF: 411

TOP: Cooperative

The optimal output and price for the cartel shown in the accompanying

a.  b. c. d. e. ANS: A Behavior  MSC: Conceptual

Q = 200 and P  = $80. Q = 260 and P  = $60. Q = 250 and P  = $80. Q = 500 and P  = $75.

none of the above. DIF:

Easy

REF: 411

TOP: Cooperative

13. If Gulfstream and Bombardier, both producers of upscale jet airplanes, were to collude rather than compete, consumers could expect: a. higher prices and lower quantities offered for sale.  b. lower prices and lower quantities offered for sale. c. higher prices and higher quantities offered for sale. d. each firm to cheat on the cartel agreement. e. one firm to emerge as the price leader in the oligopoly.

ANS: A Behavior  MSC: Conceptual

DIF:

Easy

REF: 411

TOP: Cooperative

14. If the cartel described by the accompanying diagram is broken up and forced into a perfectly competitive market situation, the optimal output and price will be:

a.  b. c. d. e.

Q = 200 and P  = $80. Q = 260 and P  = $60. Q = 250 and P  = $80. Q = 250 and P  = $75. Q = 500 and P  = $60.

ANS: D Behavior  MSC: Conceptual 15.

DIF:

Easy

REF: 411

TOP: Cooperative

Duopolists A and B face the following demand curves: Q A = 120 – 2 P   A + P   B

and Q B = 120 – 2 P   B +  P   A. If both firms have zero marginal cost and they form a cartel, what is the profit-maximizing price and quantity? a.  b. c. d. e. ANS: C Behavior  MSC: Applied

DIF:

Moderate

P  = 30, P  = 40, P  = 60, P  = 80, P  = 75,

Q = 180. Q = 160. Q = 120. Q = 80. Q = 90.

REF: 411

TOP: Cooperative

16.

Duopolists  A  and  B face the following demand curves: Q A  = 150 – 5 P   A + 4 P   B and Q B = 150 – 5 P   B + 4 P   A. If both firms have zero marginal cost and they form a cartel, what is the profit-maximizing price and quantity? P  = 25, Q = 250. a. P  = 40, Q = 100.  b. c. P  = 60, Q = 120. P  = 80, Q = 80. d. P  = 75, Q = 150. e. ANS: E Behavior  MSC: Applied 17.

DIF:

Moderate

REF: 411

TOP: Cooperative

Two firms ( A and  B) have marginal costs  MC   A and  MC   B, marginal revenues

 MR A  and  MR B, and market marginal revenue  MR. If both firms produce as a cartel, they

should produce so that: a.  b.

MC   A = MC   B = MR. MC   A = MR A and MC   B = MC   B.

c.

MC   A + MC   B = MR.

d.

MC   A + MC   B = MR A + MR B, not necessarily MC   A = MR A.

e.

MC   A = MC   B = MR A + MR B.

ANS: A Behavior  MSC: Conceptual 18.

DIF:

Moderate

REF: 411

TOP: Cooperative

If a cartel is working properly, its firms will likely be producing where ( MC i

is each firm i’s marginal cost, MR is market marginal revenue, and P  is price): MC i = MR. a.  b. c.

MC i > MR. MC i